In the aftermath of the fiscal cliff deal, there was as flurry of argument over whether or not President Obama got a good deal – which seems to very much depend on what your definition of a “good deal” is – and who is it for. For my money, the most sensible commentators all point out that this was but a prelude to coming fights, and that Obama’s not even fighting for what matters most, which is getting the economy back to growing again – the most effective way to bring deficits down – while protecting the most vulnerable and preserving America’s admittedly undersized welfare state.

The tragic reality is that while the Tea Party Republicans are downright delusional, Obama’s relative sanity is much more methodological than substantive. Consider, if you will, an instructive bit of world financial history.

In 1748, Great Britain’s debt-to-GDP ratio crossed the fearsome threashold of 100 percent – the level that today’s American elites regard as catastrophic, and cause for sustained multi-decade plans for budget-cutting – with Obama representing the “sane” and “balanced” way of approaching this. Great Britain, of course, was only just beginning its period of world dominance as the leading great power, so it must have quickly gotten its house in order, and brought down the debt-to-GDP ratio to manageable levels – right?

Well, er, not so much. In 1754, the debt-to-GDP ratio dipped to 98 percent… for two years, before rising over 100 percent again, where it stayed for more than a century, until 1860. For more than a decade, from 1814 to 1826, it was over 200 percent. The average for this entire period of 111 years was 152 percent. If only Barack Obama had been around in 1748, to keep Great Britain on a balanced path of deficit reduction, who knows what heighths of wealth and technological progress that nation might have achieved, right?

Rather than look to Great Britain’s impressive century-plus run, Tea Partiers like to warn that America is on its way to becoming Greece – but that’s utter hogwash. Greece doesn’t control its own currency. Within the EU, it has the fiscal status of a US state. Not only is the US sovereign in its own currency, that currency is the reserve currency for the rest of the world, the safest investment vehicle there is – which helps explain why it’s so sought after even though 10-year bond rates currently pay negative interest rates when adjusted for inflation.

In fact, the only other nation that America can be compared to is Great Britain during its long run as the world’s leading economic and financial power – which, as I’ve just noted, was a period marked by an extremely long period of higher debt than America has ever known, except for a few brief years in and after World War II.

If a leading world power can sustain debt-to-GDP ratios over 200 percent for more than a decade – and still remain the leading world power for nearly a century thereafter – then something is fundamentally wrong with the entire economic debate that’s enveloped Washington ever since the 2008 financial crises hit. It’s not that people aren’t coming up with some decent answers – they’re nowhere near even asking the right questions. If Great Britain’s historical example has one over-riding message it’s this: The Hitchhikers Guide to the Galaxy was right: Don’t Panic! Be concerned? Yes, of course. Panic? Not on your life. Panic can be far more dangerous and deadly than anything that sets it off in the first place. It can take a manageable, if serious, situation and turn it into a nightmare.

Moral panics

Indeed, the phenomenon of organised panics has been studied by social scientists for several decades now, and deserves serious consideration for the light it can shed on how America’s political class is driving the country to ruin, one panicked wrong turn after another. Wikipedia introduces the moral panic concept thus:

“A moral panic is an intense feeling expressed in a population about an issue that appears to threaten the social order. According to Stanley Cohen, author of Folk Devils and Moral Panics (1972) and credited as creator of the term, a moral panic occurs when ‘[a] condition, episode, person or group of persons emerges to become defined as a threat to societal values and interests’. Those who start the panic when they fear a threat to prevailing social or cultural values are known by researchers as moral entrepreneurs, while people who supposedly threaten the social order have been described as ‘folk devils.’”

It goes on to note the observation that “American sociologists tend to emphasize psychological factors whereas the British portray moral panics as crises of capitalism”. Witch hunts, pogroms, and red scares are well-known phenomena that fit into the more general notion of a moral panic, although they each rely on a more explicitly articulated pre-existing framework of mass blaming than the incidents and examples that first captured the attention of social scientists and guided the development of the concept. The eruption of rightwing hysteria over the so-called “ground zero mosque” (neither a mosque, nor at ground zero) in 2011 was a classic example of a moral panic.

Moral panics often centre around crime, drug use and youth activities more generally (comic books in the 1950s, rock ‘n roll in the 1960s, video games in 1980s, etc). As these examples suggest, moral panics may or may not involve a legitimate concern at their core. That’s not what matters from a critical perspective. These examples set a broader tone of widespread social anxiety that tends to de-emphasise the role of elite actors. But sociologist Scott Bonn shifted the emphasis back onto elites in his book Mass Deception: Moral Panic and the US War on Iraq. Given that the Iraq War was illegal under international law, and led to countless other violations as well, this conception clearly shifts the locus of deviance back onto the accusers, thus raising the issue of the role of projection in driving moral panics. Bonn’s analysis also stresses the bipartisan nature of the process – despite the fact that the Democratic base remained highly critical if not outright opposed to the war at every stage.

Compared to the Iraq War, the term “panic” might not seem appropriate when used to describe the long-term elite campaign to dismantle America’s welfare state. Yet, the term certainly appears to be justified if we think of how Ronald Reagan employed the myth of a black “welfare queen”, or how Newt Gingrich, at the apex of his political power, repeatedly sought to blame horrific crimes in the national spotlight on the welfare state. The very fact that these two men were such crucial, central actors in the long-term war against the American welfare state, and that their outrageous and fanciful claims still resonate with many, lends strong support to the claim that this war ought to be understood as an example of a moral panic.

Neither Barack Obama nor Mitt Romney are the sort of politicians who do panic particularly well as a matter of style. But that doesn’t mean they can’t partake of its substance. Romney made this abundantly clear in one of his infamous “quiet rooms” when he disparaged the 47 percent – surely one of the largest groups of folk devils around:

“There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it… My job is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.”

As odious and impactful as these remarks turned out to be in the 2012 presidential campaign, now that the campaign is over, Obama’s actions – and more tellingly, his inactions – again reveal a troubling degree of elite bipartisan consensus. Obama may have clearly wanted the support of the 47 percent whom Romney despised, but when it comes to how he sees the nation’s economic problems, he too is far more influenced by elite chit-chat in quiet rooms than he is by the views and life experience of the great unwashed. He joins the bipartisan majority of the political class in simply assuming that – one way or another – the problem with America is all those Americans, an assumption that’s central to the driving vision behind the moral panic over the welfare state.

What panic makes us miss

[Investors.com]

The worst thing about panic is that it makes you overlook important things – things which could be key to solving the actual problem at hand. Here are few examples:

(1) The deficit is already shrinking rapidly. Writing for the uber-socialist rag, investors.com (“powered by Investors Business Daily”), in November, Jed Graham noted: “Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II.”

In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.

(Of course, the history on this is quite clear: The 1937/38 recession was caused by FDR’s misguided policy shift to prematurely cutting back on government spending. FDR learned, reversed course, and recovery accelerated again.)

(2) Rather than being “out of control”, government spending growth is already historically slow. Under President Obama, government spending has grown less than 1.5 percent per year, compared to more than 2 percent under Nixon/Ford, Reagan and Bush II – all three two-year GOP presidential terms in the last 50 years.

[Thinkprogress.org]

(3) The US short-term deficit is overwhelmingly due to the Great Recession. The structural deficit – that part not due to the recession – is low enough that we can grow our way out of it: Once we’ve recovered from the recession, which is still our top priority from an economic perspective. This was all explained recently at yet another “bastion of socialism”, Bloomberg View’s The Ticker blog. Long-term health care costs are a different matter – but they’re not due to Medicare per se, they’re due to the wildly inefficient nature of the US health care system, which spends far more per capita than other countries with better health outcomes. Obamacare has improved the efficiency, extending the life of Medicare, but much more remains to be done.

(4) Because interest rates are so low, government can now borrow at negative rates (adjusted for inflation), meaning that it’s actually very sensible to borrow more now to increase the speed that we get back to a full employment economy. It’s utterly misleading to compare a money-printing national economy to a household, but if we must, it’s like taking out a zero-percent loan to buy a home, and stop paying rent. In the right circumstances, more of the right kind of debt is exactly what you need to get out of debt. The 30-year rates are somewhat higher, but economist Brad DeLong has explained how government borrowing at those rates still amounts to that rarest of things for an economist – a free lunch.

These are hard things to hear in today’s panic-driven political environment, but that’s just the point: the panic is the problem. Eighty years ago, in his First Inaugural address, Franklin D Roosevelt said, “The only thing we have to fear is fear itself – nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance.” It is as true today as it was the day those words were first spoken. If Barack Obama wants to attain the stature of FDR, he has to start thinking and acting like him. It’s just as simple as that.